Question

Exercise 6-11 (Algo) Segmented Income Statement [LO6-4]

Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement:

Sales	$	1,643,000
Variable expenses		582,290
Contribution margin		1,060,710
Fixed expenses		1,167,000
Net operating income (loss)	$	(106,290)

In an effort to resolve the problem, the company would like to prepare an income statement segmented by division. Accordingly, the Accounting Department has developed the following information:

	Division
	East			Central			West
Sales	$	443,000		$	690,000		$	510,000
Variable expenses as a percentage of sales		43	%		25	%		43	%
Traceable fixed expenses	$	264,000		$	337,000		$	191,000

Required:

1. Prepare a contribution format income statement segmented by divisions.

2-a. The Marketing Department has proposed increasing the West Division's monthly advertising by $20,000 based on the belief that it would increase that division's sales by 17%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease) if the proposal is implemented?

2-b. Would you recommend the increased advertising?

Answer 1

1
	Particulars	Total	East	Central	West
	Sales	16,43,000	4,43,000	6,90,000	5,10,000
	Variable Expense	5,82,290	1,90,490	1,72,500	2,19,300
	Contribution Margin	10,60,710	2,52,510	5,17,500	2,90,700
	Traceable Fixed Expense	7,92,000	2,64,000	3,37,000	1,91,000
	Division Margin	2,68,710	-11,490	1,80,500	99,700
	Common Fixed Expense	3,75,000
	Net Operating Income(Loss)	-1,06,290
			West
2A	Net Loss Before	-1,06,290	Profit existing	99,700
	Net Loss Now (Working )	-76,871	Profit after proposal	1,29,119
	Net Loss decreased by	-29,419	Increased	29,419
	Working	West Sale increased 17% by 20000 adverisement
	Particulars	Total	East	Central	West
	Sales	17,29,700	4,43,000	6,90,000	5,96,700
	Variable Expense	6,19,571	1,90,490	1,72,500	2,56,581
	Contribution Margin	11,10,129	2,52,510	5,17,500	3,40,119
	Traceable Fixed Expense	8,12,000	2,64,000	3,37,000	2,11,000
	Division Margin	2,98,129	-11,490	1,80,500	1,29,119
	Common Fixed Expense	3,75,000
	Net Operating Income(Loss)	-76,871
2B	The Proposal is acceptable while comparing with existing case. If it trying to reduce th existing overall loss, then the project is acceptable.Finally while comparing with the existing case,increased advertisement is recommendable.It is increasing the profit margin of West.